In an open letter to John Tiner, chief executive of the FSA, the Centre for Policy Studies claimed the body has ‘lost the respect and support of the industry’, that competitiveness is being undermined by ‘heavy handed compliance requirements’, and that innovation and entrepreneurialism is being stifled.

It called the FSA, set up in 2002, ‘one of the least accountable institutions created in the UK since the war’ and that this was nurturing a sense of disillusionment within the financial services industry.

The CPS added that the regulator was vulnerable to political direction and influence, was increasingly defensive and risk-averse, and that its staff were inward-looking and demoralised by constant change.

Recommendations to improve the FSA included revising its principle role to ‘foster partnership with the industry’, that a more light touch regime should be introduced, and that it should be much less dependent on the Treasury.